Today's women-owned and -led MSMEs struggle to meet problems like rapid digitization and an increase in natural disasters because of a glaring $158 billion financing deficit.
India is set to become a $5 trillion economy in the next three years. Micro, small, and medium businesses (MSMEs) will play a crucial role in enabling this growth. In 2021-22, MSMEs exhibited a strong contribution of about 27% to India’s GDP. Today, women-owned and led MSMEs face a glaring $158 billion gap in financing, even as these businesses try to live up to challenges such as fast-paced digitization and an increased frequency of natural disasters.
Further, women-owned businesses make up only 20.37% of these enterprises, as stated by the MSME Ministry in their annual report for the year 2021-22. Despite making up 48% of the country’s population, women’s participation in the MSME sector remains low. This is an opportunity that needs to be addressed to realise the full potential of the MSME sector – which will then translate into India’s economic acceleration.
The Indian government acknowledges this and has launched various schemes aimed at enabling women entrepreneurs, such as the Mahila Udyam Nidhi scheme and Mudra loans. However, to supplement these efforts and ensure that the onus to generate impact at the grassroots level is not on a singular entity, a unified approach needs to be undertaken by private players as well as civil society. To enable this, AVPN has partnered with Visa Foundation, which believes in uplifting everyone, everywhere, to launch a Gender Diverse MSME Taskforce in December 2022. The primary focus is on women’s financial inclusion. To that end, the task force brings together 40 diverse leaders to make recommendations on how to support women-led businesses and make key recommendations on the expansion and strengthening of gender-diverse MSMEs in the Asia Pacific region.
The need for formal credit
The lack of capital is the biggest inhibitor of the growth of women–led MSMEs. To get to the root of the issue, one needs to remember that women-owned businesses are largely self-financed. The 6th Indian Economic Census Data indicates that the source of finance for 79% of women-led enterprises is their own capital. There is a predominant family unit set up in India. Historically, women in India do not have collateral in their names and this prevents them from taking out loans from traditional formal financing institutions to scale their businesses. This points towards a need to develop mechanisms that evaluate risks for women differently, which will then help the institutions to distinguish between the distinct identity of these entrepreneurs from the homogenous family unit that they are part of.
Recently, AVPN hosted a panel discussion on Engendering MSMEs as part of CII’s Annual National Conference. In 2013, the Confederation of Indian Industry (CII) launched the Indian Women Network (IWN) – CII IWN has been working to promote equal opportunities for women to participate, grow and flourish within the Indian Economy. The panellists included Jennifer Daubney, Minister of Commercial Affairs at Canadian High Commission, Madan Padaki, Co-Founder of GAME, Meg Jones, the C20 GED International Coordinator, Royston Braganza, CEO at Grameen Capital, Shreekant Somany, Chairman of CII National MSME Council, and Shuva Ray, Head of New Initiatives at CEEW.
During the discussion, Royston Braganza, who is also an AVPN Gender Diverse MSME Taskforce member, said that impact investing could provide solutions to this problem. He emphasized the exigency for private players to come together and curate a fund focused on working capital for women to potentially solve this gap.
Why digital inclusion will help
As the world moves online, one of the key solutions lies in digital inclusion. Even though formal financing is scarce, there are procurement opportunities, grants and schemes focused on enabling women entrepreneurs. The limited access due to lack of awareness is a key hurdle faced in the sector that digitalization could provide promising answers to. For instance, maintaining a digital order book could prove beneficial for MSMEs by creating a substantial record of their work and subsequently, aiding them in accessing formal credit.
Madan Padaki, who is also a part of AVPN’s Gender diverse MSME taskforce, recalled his experience working with women entrepreneurs – saying that there is an apprehension to use technology. He stressed the need to change these mindsets by creating role models of women who have used technology successfully in every tehsil and district.
Policy interventions are thus needed to build a structural impetus to not just mentor women but also upskill them, particularly in remote areas, so that they can leverage technology and tap into the scaling opportunities that come with moving online.
Bridging the gendered gaps
An overarching challenge faced by women entrepreneurs in India is bearing the weight of age-old gender norms – an extension of the country’s sociocultural makeup. Shuva Raha, another Taskforce member, broke down the problem by reiterating how women-owned MSMEs are often perceived as a cottage industry. She pointed out the need for a paradigm shift to bring them from “the margins to the mainstream”. Scaling women-led MSMEs can create substantial employment opportunities for the entire country, she added.
To address the acute challenges faced by gender-diverse MSMEs in attracting investments, it is crucial to build consensus amongst corporate, government, and social investment leaders in the country. By working together, we can create a more supportive ecosystem for women entrepreneurs to access the finance and resources they need to grow and succeed. Today, policy interventions are required to ensure they are built out to benefit the bottom of the pyramid. Initiatives, products, and policies need to thus be reassessed with a gender lens.
By empowering women entrepreneurs and creating a more diverse and inclusive business environment, we can drive innovation, boost economic growth, and contribute to a more sustainable future for all. As the country continues to grow, we need to ensure that women are equal participants and beneficiaries in this journey.
This article is authored by Lavanya Jayaram, Executive Director, Asian Venture Philanthropy Network.
